Fannie Mae 2009 Annual Report Download - page 29

Treasury, we may not sell or transfer our LIHTC partnership interests and that FHFA sees no disposition
options. Therefore, we no longer have both the intent and ability to sell or otherwise transfer our LIHTC
investments for value. As a result, we recognized a loss of $5.0 billion during the fourth quarter of 2009 to
reduce the carrying value of our LIHTC “Partnership investments” to zero in the consolidated financial
statements. For additional information regarding our investments in LIHTC partnerships and their impact on
our financial results, see “MD&A—Consolidated Results of Operations—Losses from Partnership
Investments” and “MD&A—Off-Balance Sheet Arrangements and Variable Interest Entities.”
Capital Markets
Our Capital Markets group manages our investment activity in mortgage-related assets and other interest-
earning non-mortgage investments. We fund our investments primarily through proceeds we receive from the
issuance of debt securities in the domestic and international capital markets. Our Capital Markets group has
primary responsibility for managing the interest rate risk associated with our investments in mortgage assets.
The business model for our Capital Markets group continues to evolve. Our business activity is increasingly
focused on making short-term use of our balance sheet rather than on long-term buy and hold strategies. As a
result, our Capital Markets group increasingly works with lender customers to provide funds to the mortgage
market through short-term financing and investing activities.Activities we are undertaking to provide liquidity
to the mortgage market include the following:
•Whole Loan Conduit. Whole loan conduit activities involve our purchase of loans principally for the
purpose of securitizing them. We purchase loans from a large group of lenders and then securitize them as
Fannie Mae MBS, which may then be sold to dealers and investors.
•Early Funding. Lenders who deliver whole loans or pools of whole loans to us in exchange for MBS
typically must wait between 30 and 45 days from the closing and settlement of the loans or pools and the
issuance of the MBS. This delay may limit lenders’ ability to originate new loans. Under our early lender
funding programs, we purchase whole loans or pools of loans on an accelerated basis, allowing lenders to
receive quicker payment for the whole loans and pools, which replenishes their funds and allows them to
originate more mortgage loans.
•Dollar Roll Transactions. We had a significant amount of dollar roll activity in 2009 as a result of
attractive implied financing costs of the dollar roll versus our funding levels and a desire to increase
market liquidity. A dollar roll transaction is a commitment to purchase a mortgage-related security with a
concurrent agreement to re-sell a substantially similar security at a later date or vice versa.
•REMICs and Other Structured Securitizations. We issue structured Fannie Mae MBS (including
REMICs), typically for our lender customers or securities dealer customers, in exchange for a transaction
fee.
Securitization Activities
Our Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through
both portfolio securitizations and lender swap securitizations.
•Portfolio securitizations. Our Capital Markets group creates single-class and multi-class Fannie Mae
MBS from mortgage-related assets held in our mortgage portfolio. Our Capital Markets group may sell
these Fannie Mae MBS into the secondary market or may retain the Fannie Mae MBS in our investment
portfolio.
•Lender swap securitizations: Our Capital Markets group creates single-class and multi-class structured
Fannie Mae MBS, typically for our lender customers or securities dealer customers, in exchange for a
transaction fee. In these transactions, the customer “swaps” a mortgage-related asset that it owns
(typically a mortgage security) in exchange for a structured Fannie Mae MBS we issue. Our Capital
Markets group earns transaction fees for creating structured Fannie Mae MBS for third parties.
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